## DEFINITION

The money that you earn in the form of interest on savings is the money that you earn when you deposit it into a savings account. It is important to know how to calculate it so that you can compare the savings accounts from different banks and find the one that will work for you while it helps your money grow, it is important to know how to calculate it because it is important to know how to calculate it. When you put money into a savings account at the bank, you get paid interest on that money. Every time a period ends, the interest that was earned on savings is credited back to the account, and this amount becomes your new balance. At the end of the following period, interest will be applied to your account based on the new balance. One of the fundamental principles behind using your money as a tool to help you grow financially is the concept of compound interest, which can be explained as follows: You should familiarise yourself with the formulas for simple interest and compound interest, as well as the method for determining the annual percentage yield rate on a savings account.# Key Takeaways

- When you put money into a savings account that also pays interest, you will start to accumulate interest on your savings.
- Compound and simple interest are the two primary varieties of interest that are available.
- Calculators and spreadsheet templates that are available online can be of assistance in streamlining the process if you do not wish to perform the calculations on your own.
- The annual percentage yield of your account is a useful tool for estimating how much money you will have at the end of each period and the end of each year.

## How to Compute the Most Basic Form of Interest Gained from Savings

Use the following formula to determine how much interest you earned on your savings during a single period:- Interest = Principal x Rate x Number of Periods

**Principal**: This is the balance of your account at the amount that you have loaned to the bank.

**Interest payment frequency:**This is the frequency with which the bank will pay you interest (yearly, monthly, or daily, for example).

**Interest Rate:**The interest rate refers to the percentage of money that is added to your account each year.

**Term:**This is the total amount of time that the loan will be paid back over. For this variable, you will need to perform a conversion from months to years. One month, for instance, is equivalent to.083 years, two months are equivalent to.167 years, and 18 months are equivalent to 1.5 years. When you have all of the information, you can calculate the interest you have earned on your savings by using either the simple or compound interest formulas and plugging in the numbers. For instance, the interest that you gain on your savings throughout a single period is an example of simple interest.

## How to Compute the Interest Earned on a Savings Account Using Compound Interest

Use the following formula to calculate the interest that is compounded: Where the different variables can be found: A equals the cumulative value in the distant future P equals the first deposit made. r equals the current interest rate n = the number of times that compounding takes place t equals the number of periods that have passed or that will pass in the future. You need to take into consideration two factors to calculate compound interest on a savings account:**More frequent periodic interest payments:**Multiple interest payments are made on yearly basis to many accounts that bear interest. For instance, the interest may be paid out every month by your bank.

**A growing amount of money in the account:**Any interest payments will cause the subsequent interest calculations to be adjusted accordingly. At this point, you must factor in the presumption that the interest on your bank account compounds monthly. Make use of this formula for calculating compound interest to determine the final amount after one year (A). If you were to put $100 into an account for savings that earned interest on a monthly basis for a period of one year, you would calculate it as follows:

- A = $100 [1 + (.05 ÷ 12)] 12 * 1
- A = $100 [1 + (.004167)] 12
- A = $100 [1.004167] 12
- A = $100 [1.0512]
- A = $105.12

## Taking Into Account the Ongoing Savings Through Deposits

The previous examples take it for granted that you will make a single deposit, but this is not typically how people save their money. It is more typical to make several smaller deposits into a savings account consistently. You can easily take into account those additional deposits by making some minor modifications to the formula. In the following examples, everything will remain the same as it was in the previous equation for monthly compounding; however, instead of making an initial deposit of $100, we will assume that you start with nothing and have the intention of making deposits of $100 each month for the next five years. To perform calculations by hand, you will need to use the formula for future value. This equation looks like this:- FV equals the account's potential value in the future after taking into account deposits and compounding interest.
- The monthly payment amount is denoted by "pmt."
- r equals the interest rate on a monthly basis (divide the annual rate by 12)
- n equals the number of months in a year

- FV = $100 x [{ ((1 + 0.004167) 60) – 1 } ÷ 0.004167]
- FV = $100 x [{ 1.283 – 1 } ÷ 0.004167]
- FV = $100 x 68.0067
- FV = $6800.68

## How to Figure Out How Much Interest You Have Earned on Your Savings Within an Excel Spreadsheet

Spreadsheets can help automate the process and give you the flexibility to make rapid adjustments to the data you input. You will need to make use of the future value function to compute the amount of interest you will earn using a spreadsheet. The amount that your asset will be worth at some point in the future is known as the future value. This value is calculated based on an assumed growth rate. This formula is represented by the letter "FV" in spreadsheet programmes like Microsoft Excel and Google Sheets, among others. To create a spreadsheet from scratch, you should begin by entering the following information into any cell to calculate your simple interest earnings: This formula requires the following components, which are to be comma-separated:- The rate of interest (5 per cent in the example)
- The total number of times (interest is paid once per year)
- Regular payments (this straightforward illustration is based on the assumption that you won't make any additional deposits in the future)
- Present value ($100 initial deposit)